Fortescue's December Quarter Iron Ore Output Up Nearly a Third

Fortescue Metals is Australia’s third largest miner of iron ore with a market cap of $21.2 billion.
Photo: Fortescue Metals

Fortescue Metals Group, the world's fourth largest iron ore miner, lifted shipments by 32 percent in the December quarter from a year ago, nearly all bound for Chinese steel mills.

Australian miners, led by Rio Tinto and BHP Billiton, are ramping up production of the steel-making ingredient, banking on their lower-cost operations to see them through any softening in demand growth from Asian consumers.

Fortescue's shipments climbed to 19.6 million ton in the three months to December 31, 2012, from 14.8 million in the corresponding period a year ago, the company said, meeting analysts' expectations.

Fortescue said it expected volatile market conditions in China to stabilize in the near term.

"Steel mills are readjusting their raw material stocks to maintain more sustainable stock levels. With China's new leadership starting to rejuvenate program of economic growth and urbanization, steel demand is expected to increase and support iron ore prices," the company said in a statement.

Fortescue, which carries around $12 billion in long-term debt, last month reinstated expansion work on its Kings deposit after deferring it earlier in the year when iron ore prices halved to less than $90 a ton.

A recovery to nearly twice that price in recent weeks led the company to restart the project, which will add 40 million ton a year to Fortescue's overall yield and enable it to reach its 155-million-ton target.

(Read More: BHP, Fortescue Iron Ore Port to Reopen as Storm Passes)

"The scale benefit of adding these low cost ton is expected to significantly reduce Fortescue's overall cost of production," the company said.

In the final month of 2012, the company was producing at the annualized rate of just over 100 million tons.

Fortescue, which sells its ore at a roughly 12 percent discount to the benchmark spot price said its cash mining costs rose to an average $50.48 per ton in the December quarter from $46.35 in the same period a year ago as higher cost inventories flowed through and the Australian dollar held strong.

Fortescue shares slipped 0.5 percent, underperforming a slight rise in the broader index.

Earlier this week, BHP, the world's biggest mining company, boosted its iron ore output by 3 percent in the December quarter, while Rio Tinto recorded a 6 percent lift.